Investing for a World of Change

Are Quality companies closer to net zero?

Quality and sustainability go hand in hand. Our panel demonstrates that investors focused on quality businesses have a tailwind in the move to net zero but are always thinking about how they can improve.

Oct 21, 2021

35 minutes

Quality and sustainability go hand in hand. Our panel demonstrates that investors focused on quality businesses have a tailwind in the move to net zero but are always thinking about how they can improve.

The fast view

  • Quality companies have high return characteristics, can generate large amounts of free cash flow and invest in their business model to ensure the longevity of that outcome.
  • We believe that it is impossible to have a high-quality business that neglects sustainability. While recognising that the transition path will be different in the US, Europe and Asia, a quality company must be sustainable regardless of where it is based.
  • On the path to net zero Quality companies start from an advantaged position. They are not found in the largest carbon emitting sectors, such as energy. Furthermore, a good proportion of Quality companies have science-based transition targets.
  • However, that doesn’t mean we don’t need to think about how the companies we invest in can improve.
  • When we engage with companies, we want to see clear progression: Does the company want to improve? Is it disclosing its carbon footprint? What targets does it have for the future?
  • Sustainable businesses can be grouped as solution providers and companies benefitting from the tailwind of decarbonisation, which is where we are seeing most opportunities - such as Autodesk, a provider of design software for architects which is helping them create lower carbon buildings.
  • Many solution providers, such as green energy, are still insufficiently developed to meet our investment criteria.
  • In Asia our focus is on emerging technologies, healthcare and consumer companies. TSMC and Samsung are creating better operating and energy efficiency through their products.
  • It is important to balance sustainable progress with the health of the business. We see certain industries underspending on capex to achieve over-ambitious sustainability goals.

 

All investments carry the risk of capital loss.

No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided.

This is not a buy, sell or hold recommendation for any particular security.

Katherine Tweedie
Country Head, Canada
Clyde Rossouw
Co-Head of Quality
Charlie Dutton
Portfolio Manager

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